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Oil arguably brought an end to the old Soviet Union and once again the price of crude is proving to be a curse for the Kremlin. The precipitous drop in oil prices recently has left Vladimir Putin`s Russia on the edge of economic ruin. The Kremlin has warned of a severe slowdown next year, with the economy entering a technical recession in the first quarter. The year started badly for Russia after the Ukraine crisis boiled over and triggered capital flight and tough economic sanctions. Now a collapse in oil prices – down 45% since June – has become primary cause of Russian pain. The country was recently thought to be losing around $40bn [£25bn] per year due to sanctions and up to $100bn per year due to oil prices, according to the finance minister. Russia`s rouble has also slumped, hitting many Russian consumers by pushing up inflation at a time when any hopes for growth are distant. The sanctions crippling Russia are expected to persist, and possibly intensify, unless the political situation in Ukraine is resolved. When the first rounds of sanctions were discussed, oil prices stood at around $110 per barrel. The high cost of energy gave European countries little room to manoeuvre, as strong measures against Russia could have provoked the Kremlin into turning off supplies. In recent days, however, oil has traded closer to $60, and a fall to as low as $50 would lead the rouble lower still. Under such a scenario, Morgan Stanley estimates that inflation would increase by six to eight percentage points. Russia`s GDP would contract at an annual rate of 6% – a harsh slowdown following on from years of near stagnation. The Russian deficit may rise by five percentage points of GDP, but the prospect of a default remains remote.

13.12.2014 18:43 China`s GDP is Now Largest in the World: But What Does that Mean?

China`s rise on the economic stage is remarkable. The country is in a vast and sometimes traumatic transformation, with political and philosophical tugs of war underway culturally, socially, and economically. The topics of trade and fairness and freedom are always in the news, but some analysts would rather focus on what the GDP number tells us: less than it seems.
Columnist Brett Arends of Marketwatch describes it as follows: To put the numbers slightly differently, China now accounts for 16.5% of the global economy when measured in real purchasing-power terms, compared with 16.3% for the U.S. This latest economic earthquake follows the development last year when China surpassed the U.S. for the first time in terms of global trade. So, does China`s GDP matter? Things that can be measured in multiple ways need some context. China has 4.2x the number of people as the US. The US GDP per person is about $52,000, so the per person GDP of China is about 1/4 of that. This means that China still has a way to go for its economic improvement to be felt around the country. In the long run, it is likely that India will pass China in about 20 years, as China`s policy of one child per family will cause its population to flatten and eventually decline. India`s population, and economic improvement, are on track in a positive trend.

Russia`s fifth interest-rate increase this year failed to stem the ruble`s worst rout in 16 years, risking further damage to an economy battered by sanctions and oil prices near the lowest since 2009. The Bank of Russia increased its key rate to 10.5 percent from 9.5 percent, according to a website statement. That matched the median estimate of 34 economists surveyed by Bloomberg. The ruble traded 0.7 percent weaker at 55.24 per dollar at 3:27 p.m. The bank is holding a news conference on the rate move. “This is a spineless decision,” Vadim Bit-Avragim, who helps oversee about $4 billion at Kapital Asset Management LLC in Moscow, said by phone. “If the central bank`s goal was to defend the ruble, it would`ve raised rates by 2-3 percentage points.” The rate increase shows the narrowing options left to policy makers after they spent about $80 billion on defending the currency and shifted to a free-floating exchange rate ahead of schedule last month. The central bank has said it`s ready step in at any time to prop up the ruble amid a depreciation that`s wiped out 40 percent of the currency`s value this year. Its reserves fell $4.3 billion last week to $416.2 billion. A weaker ruble, coupled with an increase in inflation expectations, “pose substantial” risks to price growth, the central bank said.

The World Bank announced a gloomier economic forecast for Russia on Tuesday Dec. 9th as the ruble fell despite the central bank saying it had spent billions last week to prop it up. Falling oil prices and sanctions over the crisis in Ukraine have taken a heavy toll on Russia`s economy, and the World Bank on Tuesday predicted it would shrink by 0.7 percent in 2015. It however warned that the contraction would be worse if oil prices were to keep sliding. The bank had previously predicted zero growth for Russia for 2015. Its new forecast was in line with one from Russia`s economic development ministry last week, which predicted a 0.8 percent contraction in 2015. The World Bank said its latest forecast was based on the "most likely" scenario of crude prices averaging at $78 in 2015. But if oil prices fell to $70, Russia`s output would shrink by 1.5 percent and households would remain in "a crisis mode" for 2015 and 2016, it said. "In the baseline scenario, investment is projected to contract for a third year in a row in 2015 because of continued uncertainty, restricted access to international financial markets by Russian companies and banks, and lower consumer demand," Birgit Hansl, the World Bank`s lead economist for Russia, was quoted as saying. The World Bank said that Russia would avoid recession in 2015 in a best case scenario if oil prices averaged $85.

09.12.2014 14:41 Ukraine`s economy: Worse to come

Nina Kulikova hid in her bathtub and cried when the war neared her home this summer in Sloviansk, a city in eastern Ukraine. A shell hit a neighbouring stairwell, shattering her windows and punching a crater in the middle of her apartment block. No one has come to rebuild 4 Bulvarnaya Street. Ms Kulikova has nowhere to go. Meanwhile, the prices of food, medicine and utilities have all spiked. Her husband collects bottles and cartons for recycling to make ends meet. A year of revolution and war has taken a grim toll on Ukraine`s economy. GDP could fall by 10% this year. The currency, the hryvnia, has plunged nearly 50% against the dollar in 2014. Inflation has hit 19%; at the beginning of the year, prices were stable. The central bank raised rates this week, for the third time this year, to 14%. Consumer spending rose by 5% in the second quarter compared to the year before, but that probably reflects panic buying; it is likely to slump soon too. In April the IMF co-ordinated a bail-out to which it pledged to contribute $17 billion over two years. A coalition of Western countries provided smaller amounts. So far about $7 billion has been dispersed. But Ukraine needs more than temporary financing, and the conditions attached may be exacerbating its woes.

02.12.2014 23:08 Russia Sees Economy in Recession Next Year

Russia`s Economy Ministry warned that the country will slip into recession next year and the ruble will remain weak, in the government`s strongest admission yet of the depth of the damage wrought by the drop in oil prices and Western sanctions. While many private and foreign economists have been warning of a contraction for weeks, the government had stuck to its forecasts that Russia would eke out slow growth next year. However, the sharp drop in oil prices - which knocked the ruble to a record low of 54 rubles to the dollar on Tuesday - has dashed remaining hopes. The Economy Ministry said it sees the economy shrinking by 0.8% in 2015 compared with earlier expectations for recovery in economic growth to 1.2% from around 0.5% this year. A month ago, the central bank called for zero growth next year. A contraction in GDP next year would be the first time the Russian economy has shrunk since 2009. The Economy Ministry lowered an average 2015 oil price forecast to $80 per barrel from $100 per barrel. Such a revision is expected to keep an average ruble rate in 2015 at 49 per dollar compared with earlier expectation of 37.7. The real effective ruble rate is expected to weaken by 13.5% next year. The Finance Ministry said that the Economy Ministry is exaggerating downside risks to the ruble. Finance Minister Anton Siluanov said the dollar would be trading below 45 rubles next year if oil prices average $80 per barrel.

The Russian ruble dropped to a new all-time low against the U.S. dollar on Friday while other oil-related currencies also got crushed a day after the Organization of the Petroleum Exporting Countries did nothing to alleviate an oil glut. Russia`s currency USDRUB, +2.30% on Friday traded at 49.965 against the greenback, its weakest level ever. The dollar bought 48.795 rubles late Thursday. The ruble`s fresh descent came as the U.S. dollar enjoyed another round of broad gains against currencies from oil-producing countries including Norway and Canada. Oil futures plunged, with the January Nymex contract CLF5, -10.45% dropping more than 10% to end at $66.15 a barrel.

Russian inflation will exceed forecasts to reach 9 percent by year end and rise further in early 2015 because of the rouble`s weakness, Economy Minister Alexei Ulyukayev told radio Ekho Moskvy. The rouble has weakened some 30 percent versus the dollar this year, as Western sanctions over the Ukraine crisis have made it harder for banks and companies to refinance foreign currency debts and as tumbling oil prices have hurt government revenue. "Inflation for 2014 would be much higher than any forecasts, that`s because it depends on (rouble) devaluation," Ulyukayev said. Last week, the Russian central bank increased its inflation forecast for this year to 8.2-8.4 percent from 7.5 percent. For 2015, it saw inflation abating to 6.2-6.4 percent -- still higher than previous 4.5-5.0 percent estimates. "By the end of the first quarter (of 2015) inflation will stand by around 3.5 (percentage points) higher than we expected. And we expected it at 6 percent... By the end of this year it will reach 9 percent," the minister said.

20.11.2014 13:30 Five reasons Russia may face worse times

Things in Russia are going from bad to worse. A double whammy of falling oil prices and sanctions imposed over Ukraine has led to rampant inflation, a plunging currency, a stagnant economy and a loss of confidence among foreign investors. The Russian central bank said it expected no growth in 2015, and little improvement the following year, confirming what many economists and external officials have been saying for months. Here are five reasons the country could face even tougher times: 1. Banks squeezed. 2. Budget hole. 3. Sanctions. 4. Inflation. 5. Putin in denial.

17.11.2014 19:13 The collapse of Ukraine`s economy

The economy of Ukraine is a mess. By year`s end it will have shrunk by 10%. The east of the country, where the conflict with pro-Russian separatists has raged, has seen billions of dollars` worth of damage. Also Ukrainian commerce is throttled by Russian sanctions and cutting off gas supplies. The West, despite big promises of help, has been woeful in its response. Unless there is a change of course soon, Ukraine`s economy could collapse. The West`s main tool for helping Ukraine has been the International Monetary Fund (IMF). In April the fund agreed to lend Kiev $17 billion over two years, in return for an austere budget and reforms to curb corruption. Other donors pledged smaller amounts. This money, $27 billion in total, was deemed enough to avoid default and boost growth. So far Ukraine has received about $7 billion, enough to stave off an immediate debt crisis, but not enough to rebuild an economy that has been hit far harder than anyone expected six months ago. The decline in GDP is twice as big as the IMF forecast in April. Consumers face ever higher fuel bills, private capital is fleeing and the currency is plunging. The hryvnia, which hit a new nadir of 16 to the dollar this week, has lost half its value this year. Back in August the IMF calculated that under an "adverse scenario", Ukraine would need an extra $19 billion of funds in 2015. It is already worse than that.